March 3, 2021 - The U.S. Small Business Administration (SBA) issued new Paycheck Protection Program (PPP) rules that allow self-employed individuals who file Form 1040, Schedule C, Profit or Loss From Business, to calculate their maximum loan amount using gross income instead of net profit.
The calculation change is detailed in a 32-page interim final rule published late Wednesday afternoon by the SBA. The SBA also released an updated set of frequently asked questions and six updated or new application forms, as follows:
The New Interim Final Rule
The interim final rule, titled “Business Loan Program Temporary Changes; Paycheck Protection Program — Revisions to Loan Amount Calculation and Eligibility,” revises the maximum loan calculations for sole proprietors who file Schedule C returns, but the change is not retroactive. The SBA and Treasury have ruled that borrowers whose PPP loans already have been approved cannot increase their loan amount based on the new methodology.
The new IFR allows a Schedule C filer who has:
The IFR provides different sets of maximum loan calculation instructions for Schedule C filers with no employees (see pages 10–11 of the PDF) and with employees (see pages 11–13 of the PDF). These borrowers may use their PPP proceeds to cover the following:
To mitigate the risk of fraud, a Schedule C filer that reports more than $150,000 gross income to calculate its first-draw PPP loan will not be able to claim the safe harbor provided for borrowers that, together with their affiliates, received PPP loans of less than $2 million. The SBA said it is eliminating the loan necessity safe harbor for these borrowers because they may be more likely to have other available sources of liquidity to support their business’s operations than Schedule C filers with lower levels of gross income.
The SBA will review a sample of the population of first draw PPP loans made to Schedule C filers using the gross income calculation if the gross income on the Schedule C used to calculated the borrower’s loan amount exceeds the $150,000 threshold. The review will assess whether these borrowers complied with the PPP eligibility criteria, including the good faith loan necessity certification.
To see all of the updates and the SBA’s latest FAQs, you can click here.